Enacts "the foreclosure fraud prevention act of 2012"; creates the crimes of residential mortgage foreclosure fraud in the first and second degrees.
TITLE OF BILL: An act to amend the penal law, in relation to enacting the "foreclosure fraud prevention act of 2012"
PURPOSE OR GENERAL IDEA OF BILL: To protect New Yorkers facing the foreclosure of their homes from "robosigning" and other fraudulent business practices during the foreclosure process by imposing both misdemeanor and felony-level penalties on those who intentionally engage in such conduct and on "high managerial agents" of residential mortgage businesses who recklessly tolerate such fraudulent conduct by their employees and agents.
SUMMARY OF SPECIFIC PROVISIONS: Section 1 establishes the title of the act as "The Foreclosure Fraud Prevention Act of 2012."
Section 2 amends Penal Law section 187.00 to add seven new definitional subdivisions, including a definition of "residential mortgage foreclosure fraud," which is committed by a person who, being an employee or agent of a residential mortgage business acting within the scope of his or her employment, intentionally engages in fraud or deception by authorizing, preparing, executing, offering or presenting for filing any written instrument which such person: (a) knows contains a material false statement, material false information or a material omission; and (b) knows or believes will be filed with a court or other public office or public servant, including but not limited to a federal, state or local agency, department or bureau, in support of or in conjunction with a pending or prospective residential mortgage foreclosure action.
Section 3 amends Article 187 of the Penal Law to add a new section 187.30, defining the class A misdemeanor of Residential Mortgage Foreclosure Fraud in the Second Degree, and a new section 187.35, defining the class E felony of Residential Mortgage Foreclosure Fraud in the First Degree.
Residential Mortgage Foreclosure Fraud in the Second Degree is committed by an employee or agent of a residential mortgage business who engages in "residential mortgage foreclosure fraud" as defined in section two of the bill. Residential Mortgage Foreclosure Fraud in the First Degree is committed by a person who: (1) as part of a "systematic ongoing course of conduct," engages in "residential mortgage foreclosure fraud" with respect to five or more pending or prospective residential mortgage foreclosure actions within a one-year period; or (2) as a "high managerial agent" of a residential mortgage business who knows that one or more of his or her agents or employees are engaged in Residential Mortgage Foreclosure Fraud in the First Degree as described above, fails to take reasonable measures to prevent such conduct from continuing.
Section four establishes the effective date of the Act as ninety days after it shall have become a law.
EXISTING LAW: Article 187 of the Penal Law, which establishes the misdemeanor and felony-level crimes of "Residential Mortgage Fraud," is aimed primarily at fraudulent conduct in the solicitation of, application for or underwriting of residential mortgage loans, and does not specifically address fraud in the residential mortgage foreclosure process. Nor do other existing Penal Law offenses that relate to falsifying business records or offering false written instruments for filing target specific fraudulent conduct in the foreclosure process that is the subject of this legislation.
JUSTIFICATION: The abuses committed in recent years by mortgage servicers in mortgage foreclosure proceedings are well documented. Multiple employees of the major servicers have admitted in sworn testimony that they perpetrated systematic fraud on the courts in foreclosure proceedings by "robo-signing" affidavits -- ie., attesting to personal knowledge about mortgages and properties despite having no such knowledge. These abuses occurred in hundreds of thousands of proceedings nationwide. The dramatic increase in the number of foreclosure proceedings being commenced compounded the problem. In 2005,22,601 foreclosure actions were filed in New York, and by 2010 the number of annual filings had increased to 42,356. During 2009, there were approximately 54,500 mortgage foreclosure proceedings pending in New York courts and during 2010, the number of pending actions increased to over 77,800.
The wide-spread practice of robo-signing has prompted a number of investigations by governmental authorities, including several by the Office of the NYS Attorney General (OAG) to determine the scope of the fraud committed against the courts of this State. In April 2011, OAG issued subpoenas to Steven J. Baum, P.C., at the time one of the major mortgage foreclosure legal firms in New York State handling approximately 40% of all mortgage foreclosure filings in the State. The Attorney General's investigation, which recently led to a $4 million settlement with the Baum Firm, found that the Firm routinely brought foreclosure proceedings without taking appropriate steps to verify the accuracy of the allegations or the plaintiffs right to foreclose. From at least 2007 through sometime in 2009, Firm attorneys repeatedly verified complaints in foreclosure actions stating, among other things, that the plaintiff was "the owner and holder of the note and mortgage being foreclosed," when, in many securitized loan cases, the Firm did not have documentary proof that the plaintiff was the owner and holder of the note and mortgage.
The Attorney General further found that attorneys routinely verified complaints that had been prepared by non-attorneys in an assembly-line fashion and without adequate attorney supervision -which verifications stated, among other things, that the attorneys had read the complaints and knew their contents -- without reviewing the contents of the complaints or the underlying documents such as the original note or mortgage or any mortgage assignments.
Robo-signing and related foreclosure abuses have also prompted a coordinated review by state and federal regulators. In 2010, following revelations of the widespread use of robo-signed affidavits in foreclosure proceedings across the country, New York, along with other state attorneys general, formed a working group to investigate the problem. The major mortgage servicing banks soon acknowledged that individuals had been signing thousands of foreclosure affidavits without reviewing the validity or accuracy of the sworn statements. Several national banks then agreed to stop their foreclosure filings and sales until corrective action could be taken. In April, 2012, New York and 48 other state attorneys general along with federal agencies, including the Departments of Justice, Treasury, and Housing and Urban Development reached a landmark settlement with the five leading bank mortgage servicers resulting in substantial changes to the servicers' servicing and foreclosure-related practices and approximately $25 billion in monetary sanctions and relief.
Federal banking regulators also examined the foreclosure and servicing practices of more than a dozen major banks and uncovered extensive problems in the preparation of foreclosure documents by bank mortgage servicers and also inadequate policies, staffing and oversight of internal foreclosure processes. In their report, the federal regulators concluded that "most servers had affidavit signing protocols that expedited the processes for signing foreclosure affidavits without ensuring that the individuals who signed the affidavits personally conducted the review or possessed the level of knowledge of the information that they attested to in those affidavits.... Examiners also found the majority of servicers had improper notary practices that failed to conform to state legal requirements."
The New York Legislature responded to the residential mortgage crisis with comprehensive legislation enacted in 2008 and 2009. Intended to address the high number of defaults by unrepresented defendants in residential foreclosure proceedings, the new legislation provided additional protections for homeowners, including but not limited to a requirement that, at least 90 days before commencing foreclosure proceedings, mortgage lenders and assignees notify homeowners about the availability of housing counseling and foreclosure prevention services (see, RPAPL § 1305). Within 60 days of the filing of proof of service, the court must hold a mandatory settlement conference, to which the plaintiff must bring specified key documents, including the mortgage and note, or the name, address, and phone number of the legal holder of the mortgage if it is not the plaintiff; payment history; and an itemization of the amounts needed to cure and pay off the loan (see, CPLR 3408(e).
While an important step in the right direction, these recent legislative advances and civil enforcement actions against "foreclosure mills" are not enough to ensure that New York homeowners are fully protected from ongoing misconduct and outright fraud in the residential foreclosure arena. Accordingly, this legislation would impose tough new criminal sanctions -- including felony-level penalties -- against agents and employees of residential mortgage businesses who intentionally engage in fraud or deception in the preparation, execution or presentation for filing of written
instruments containing material false information or statements, or material omissions, with knowledge or belief that the documents will be filed in conjunction with a residential mortgage foreclosure action. Further, under the legislation, those "high managerial agents" of a residential mortgage business who know of such fraudulent or deceptive conduct by their agents and employees, but do nothing to prevent it, will face similar, felony-level, punishment as well.
PRIOR LEGISLATIVE HISTORY: New Bill.
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: 90 days.
STATE OF NEW YORK ________________________________________________________________________ 7759 IN SENATE June 18, 2012 ___________Introduced by Sen. SALAND -- (at request of the Attorney General) -- read twice and ordered printed, and when printed to be committed to the Committee on Rules AN ACT to amend the penal law, in relation to enacting the "foreclosure fraud prevention act of 2012" THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. This act shall be known and may be cited as the "foreclo- sure fraud prevention act of 2012." S 2. Section 187.00 of the penal law is amended by adding seven new subdivisions 5, 6, 7, 8, 9, 10 and 11 to read as follows: 5. "RESIDENTIAL MORTGAGE FORECLOSURE FRAUD" IS COMMITTED BY A PERSON WHO, BEING AN AGENT OF A RESIDENTIAL MORTGAGE BUSINESS ACTING WITHIN THE SCOPE OF HIS OR HER EMPLOYMENT, INTENTIONALLY ENGAGES IN FRAUD OR DECEP- TION BY AUTHORIZING, PREPARING, EXECUTING, OFFERING OR PRESENTING FOR FILING ANY WRITTEN INSTRUMENT WHICH SUCH PERSON: (A) KNOWS CONTAINS A MATERIAL FALSE STATEMENT, MATERIAL FALSE INFORMA- TION OR A MATERIAL OMISSION; AND (B) KNOWS OR BELIEVES WILL BE FILED WITH A COURT OR OTHER PUBLIC OFFICE OR PUBLIC SERVANT, INCLUDING BUT NOT LIMITED TO A FEDERAL, STATE OR LOCAL AGENCY, DEPARTMENT OR BUREAU, IN SUPPORT OF OR IN CONJUNCTION WITH A PENDING OR PROSPECTIVE RESIDENTIAL MORTGAGE FORECLOSURE ACTION. 6. "AGENT" SHALL HAVE THE SAME MEANING AS PROVIDED IN PARAGRAPH (A) OF SUBDIVISION ONE OF SECTION 20.20 OF THIS CHAPTER. 7. "HIGH MANAGERIAL AGENT" SHALL HAVE THE SAME MEANING AS PROVIDED IN PARAGRAPH (B) OF SUBDIVISION ONE OF SECTION 20.20 OF THIS CHAPTER. 8. "WRITTEN INSTRUMENT" SHALL HAVE THE SAME MEANING AS PROVIDED IN SUBDIVISION THREE OF SECTION 175.00 OF THIS PART. 9. "RESIDENTIAL MORTGAGE BUSINESS" MEANS A LENDER OR ANY OTHER PART- NERSHIP, CORPORATION, COMPANY, TRUST OR ASSOCIATION ENGAGED IN WHOLE OR IN PART IN THE BUSINESS OF ORIGINATING, GRANTING, SERVICING OR FORECLOS- ING UPON RESIDENTIAL MORTGAGE LOANS. 10. "LENDER" MEANS A MORTGAGE BANKER AS DEFINED IN PARAGRAPH (F) OF SUBDIVISION ONE OF SECTION FIVE HUNDRED NINETY OF THE BANKING LAW OR ANEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD16190-04-2 S. 7759 2
EXEMPT ORGANIZATION AS DEFINED IN PARAGRAPH (E) OF SUBDIVISION ONE OF SECTION FIVE HUNDRED NINETY OF THE BANKING LAW. 11. "RESIDENTIAL MORTGAGE FORECLOSURE ACTION" MEANS AN ACTION BROUGHT PURSUANT TO THE REAL PROPERTY ACTIONS AND PROCEEDINGS LAW TO FORECLOSE UPON A RESIDENTIAL MORTGAGE LOAN. S 3. The penal law is amended by adding two new sections 187.30 and 187.35 to read as follows: S 187.30 RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE SECOND DEGREE. A PERSON IS GUILTY OF RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE SECOND DEGREE WHEN HE OR SHE COMMITS RESIDENTIAL MORTGAGE FORECLOSURE FRAUD. RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE SECOND DEGREE IS A CLASS A MISDEMEANOR. S 187.35 RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE FIRST DEGREE. A PERSON IS GUILTY OF RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE FIRST DEGREE WHEN: 1. AS PART OF A SYSTEMATIC ONGOING COURSE OF CONDUCT, SUCH PERSON ENGAGES IN THE CONDUCT PROHIBITED BY SECTION 187.30 OF THIS ARTICLE WITH RESPECT TO FIVE OR MORE PENDING OR PROSPECTIVE RESIDENTIAL MORTGAGE FORECLOSURE ACTIONS WITHIN A ONE-YEAR PERIOD; OR 2. BEING A HIGH MANAGERIAL AGENT OF A RESIDENTIAL MORTGAGE BUSINESS, HE OR SHE: (A) KNOWS THAT ONE OR MORE AGENTS OF SUCH BUSINESS ARE ENGAGED IN THE CONDUCT PROHIBITED BY SUBDIVISION ONE OF THIS SECTION; AND (B) FAILS TO TAKE REASONABLE MEASURES TO PREVENT SUCH CONDUCT FROM CONTINUING. RESIDENTIAL MORTGAGE FORECLOSURE FRAUD IN THE FIRST DEGREE IS A CLASS E FELONY. S 4. This act shall take effect on the ninetieth day after it shall have become a law.